Post Budget, Realty Prices May Shoot Up

Home buyers will have to shell out more money as the proposal to increase the service tax in the Union Budget is expected to increase the cost of residential property in the coming days.

The budget has increased the service tax from 12.36 per cent to 14 per cent. Lalit Kumar Jain, managing director of Kumar Urban Developers and chairman of the Confederation of Real Estate Developers Associations of India (CREDAI) said that the increase in service tax will have a cascading effect on the real estate sector.

“This will increase the cost of housing. The budget thrust on infrastructure development will increase the demand for steel and cement in the country, which is likely to increase their prices. This along with an increase in service tax would increase the cost of residential property by at least 5 per cent in the near term. We will have to wait and see what impact it will have on a longer term basis,” Mr Jain added.

According to experts, there will be a cost escalation in a whole lot of services in the real estate sector like consultant services, electrical, mechanical and contracting services among others. “The builders would definitely pass on the additional burden of an increase in service tax to the end consumer. To that extent, the end user would get impacted,” said Ramesh Nair, chief operating officer (COO), JLL India.

However, Mr Nair added that the budget’s focus on infrastructure and the manufacturing sector is a huge positive for the domestic real estate sector. “It will create lot of employment opportunities and increase the demand for housing. Moreover, the budget proposal extending the facility of visa on arrival to 150 countries is going to boost the hospitality sector, which was grappling with the issue of adequate demand and lower occupancy levels,” he added.

Sanjay Dutt, executive managing director, south Asia, Cushman & Wakefield said that the increase of nearly 2 per cent in service tax is going to increase the overall costs to buyers and those availing services from the real estate sector. However, on the positive side he said that the abolition of wealth tax could boost investments by middle class and some sections of the high net-worth individuals, as they need not worry about getting taxed each year for their long-term investment in the sector.